The Australian Securities Exchange (ASX) has announced that US-based blockchain firm Digital Asset will be responsible for replacing its Clearing House Electronic Subregister System (CHESS) with a distributed ledger solution.

The CHESS system is used by the ASX to record shareholdings and manage the clearing and settlement of equity transactions publicly listed in Australia.

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It dates back to the 1990s and is currently still in use by the exchange.

In a statement, the ASX said the decision to choose Digital Asset follows the successful build of enterprise-grade distributed ledger technology (DLT) software for core equity clearing and settlement functions, as well as the completion of testing over the past two years by both parties.

The testing included two independent third-party security reviews of Digital Asset's technology, the ASX said.

"The testing confirms ASX's confidence in the functional, capacity, security, and resilience capabilities of [Digital Asset's] application of DLT to meet the needs of Australia's financial marketplace and maintain the highest regulatory and operational standards," the statement explains.

While delivering its 2017 financial results in August, the exchange said its new post-trade solution to replace the CHESS platform was still undergoing testing, with the software on track for assessment in December by a third party.

It also expected to announce the vendor responsible for the platform by March 2018, when it was going to determine if the blockchain was the right solution.

The organisation has been planning to replace or upgrade its trading and post-trade platforms for over two years, announcing in September 2016 that it had a complete prototype and was moving to build an "industrial-strength solution" to use as its equity settlement and clearing platform.

The ASX said previously that the new CHESS trading platform will provide 24-hour OTC clearing and OTC client clearing enhancements that it expects will provide "contemporary" technology and additional functionality.

Over the past year, the ASX conducted industry-wide consultation, including quarterly webinars with over 150 participants; performed demonstrations of the blockchain-based technology to 110 companies from global finance companies; held a series of engagement workshops; and arranged six business committee meetings to prepare the DLT solution.

On Thursday, the ASX said it will now work with stakeholders on finalising the scope of Day 1 functionality for the new system. Day 1 functionality and the proposed timing for transition are expected to be released for market feedback at the end of March 2018.

"Having completed this work, we believe that using DLT to replace CHESS will enable our customers to develop new services and reduce their costs, and it will put Australia at the forefront of innovation in financial markets," ASX MD and CEO Dominic Stevens said.

"While we have a lot more work still to do, today's announcement is a major milestone on that journey."

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The bank's head of blockchain has revealed the Commonwealth Bank is currently implementing with a large world issuer in what will be a 'world-first' issuance of a bond on the blockchain that it hopes to bring to market in 2018.

With the emergence of blockchain potentially requiring the government to find other means of tracing the income and assets of organisations and individuals, a House of Representatives committee has toyed with the idea of the ATO heading down the distributed ledger path.

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